AARP calls for retirement account withdrawals rule change

Older Americans could be financially penalized unless the rules governing mandatory retirement account withdrawals are amended, the AARP has warned.

The retiree advocacy group has called for a temporary freeze on these withdrawals, due to the recent state of the U.S. economy.

Under current rules, those who are aged 70 ½ and older must take distributions from their account based on the fair market value of this account on the final day of the previous year.

In a letter to treasury secretary Henry Paulson, AARP CEO Bill Novelli said that many people would find themselves choosing between taking a withdrawal based on higher values than those currently seen or paying a tax penalty of 50 percent for not taking a withdrawal.

"The sudden decline in the economy and plunging stock markets has jeopardized the retirement savings of millions of retired workers," Novelli wrote.

"In addition to steps that are already being taken to stabilize the financial markets, we believe it is also critical to help stabilize individual finances."

Last month, the AARP released a statement supporting Paulson’s proposal of a second economic stimulus package, aimed at providing a boost to Main Street instead of Wall Street.

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